Hooray- hedge funds are stepping down from buying real estate

For the past three years they have been swarming over the hardest-hit housing markets, buyingdistressed propertiesin bulk and pushing prices higher by double digits. The idea for theseinvestorswas not to buy and flip, but to hold and rent. Now some investors say that they have priced themselves out of the market.

“Higher prices are reducing returns on investment, and investors are responding by cutting back on their purchasing plans until conditions sort out,” said Chris Clothier, a partner in MemphisInvest.com andPremier Property Management Group, which commissioned a national survey of investors conducted byORC International. “Fewerforeclosures, risingproperty valuesand competition from hedge funds are making it tough to find good deals on distress sales.”

Nearly half the investors surveyed said that they planned to cut back on purchases of homes in the coming year; in a survey last August, just 30 percent said they planned to cut back. Only 20 percent of investors said they plan to increase purchases, compared with 39 percent who said they would last August. All this could have a significant impact on the housing recovery.

Bargains are drying up when it comes to buying foreclosed properties. The number of foreclosure sales in the first quarter of this year fell 22 percent from a year ago, according to RealtyTrac, a real estate website. The number ofshort sales, when the home is sold for less than the value of the mortgage, also fell, as rising prices provided less incentive for banks to agree to such deals. Some claimbanks are actually holding onto repossessed homes, waiting for prices to rise higher.

Investors accounted for 19 percent of home sales in April, according to the National Association of Realtors, down from 24 percent in all of 2012. Investors include individual buyers as well as large hedge funds, but the hedge funds have been getting much of the attention, credited with juicing prices in the hardest hit housing markets like Phoenix and Las Vegas. Their so-called REO-to-Rent strategy (Real Estate Owned-to-Rent) has evolved into a new asset class, with two of the companies that engage in the practice going public this year as real estate investment trusts (REITs).

Do you think that they have discovered that it’s a lot harder to manage 300 homes scattered all over than one apt building with 300 units? It’s much harder to find a good property management company for single family homes than for apt buildings.

In addition, renterare even more unreliable for paying than home owners, Besides that, California is a tenant state which that it’s tough to evict. If everything goes right, its 4 months. If you get a sophisticated tenant, lots of luck. That cuts into your bottom line big time.

This is good news for us. We may have a fighting chance to buy some reos and listed properties.